Though Magellan has ultimately received the go ahead for its planned merger with Barrenjoey, the firm is facing some backlash regarding its recent capital raise with claims it “shafted” its existing retail shareholders.
Earlier this year, the firm announced its intentions to acquire-out the remainder of Barrenjoey Capital Partners from its existing 40 per cent stake for full ownership and merge it with the Magellan business in a $903 million deal.
On 10 April, Magellan held an extraordinary general meeting (EGM) with shareholders to vote on the issuance of 106,838,520 fully paid ordinary shares by Magellan to the Barrenjoey Parties and an affiliate of Barclays.
Shareholders ultimately voted in favour of the motion with a 92.28 per cent approval rate meaning, pfinishing regulatory approval, the deal is slated for completion over the next few months.
Magellan intfinishs to fund the deal in part through the issuance of these shares as well as applying funds raised from a $130 million institutional placement and a non-underwritten share purchase plan (SPP).
The SPP had a tarreceive of $20 million and built available approximately 2,366,548 new fully paid ordinary shares to be issued to eligible shareholders at $8.45 per new share.
The problem is it went too well, and this is where the firm has run into some trouble.
In an overwhelming display of interest, Magellan received $129.4 million in valid applications from 5,195 eligible shareholders, exceeding its initial tarreceive more than five times over.
As a result, the firm declared in an ASX statement on 31 March that it had to implement a scale-back of applications in accordance with the SPP terms and conditions via the application of the following principles:
Applications for up to $997.10 or up to 118 new shares were not subject to any scale-back; and
Application for more than $997.10 were subject to a scale back on a pro-rata basis having regard to the number of shares held as at the SPP record date, subject to the maximum application amount of $30,000 per eligible shareholder and a minimum allocation of 118 new shares.
While Magellan is refunding the excess funds raised, an attfinishee at the meeting claimed retail shareholders had been “shafted” by this decision.
“Who on the board or on the management team was responsible for the allocation decision? Becautilize obviously you’ve diluted all the other institutional shareholders as well by giving a majority of the overall raise to one non-shareholder,” they inquireed.
“You’ve given majority of the placement to one non-shareholder and then you’ve decided to shaft us all by scalding back $129 million in applications to $20 million when you could have just gone to 50 or 80 or 100 and it wouldn’t have built any difference in the overall scheme of things, but you wouldn’t have been so overtly and deliberately shafting your retail shareholders, who you’d sfinish an offer to. So, who was building the decisions?”
The single non-shareholder they refer to here is the Lowy Family Group, the wealthy family’s private investment business and family office, which took out a 5.1 per cent stake in Magellan after the merger was announced.
Of the $130 million institutional placement, the Lowy family’s allocation represented around 60 per cent. This led an attfinishee to inquire whether they had received “preferential treatment” in the recent capital raising exercise.
In defence of its decision to retain the SPP cap, chairman Andrew Formica declared this was due in part to limitations on shares that could be offered to Barclays as a stake of 5 per cent or higher would see Magellan subject to “increased regulatory oversight, particularly in the US, linked to Barclay’s ongoing regulatory requirements”.
“The original arrangements were that Barclays would take a full script. When they were unable to, given the regulatory challenges that were posed to us, that meant that we they would take cash of $148.5 million instead of script to that value. So that set the size of the overall placement,” Formica declared.
Addressing the question of the Lowy family’s holding and how it may have influenced the decision to cap the SPP, Formica noted their valuable vote of confidence in becoming a shareholding despite challenging market conditions but suggested they had no direct sway on this decision.
“[The institutional placement launch] happened to coincide on the weekfinish that Israel and the US invaded Iran. It was a very uncertain time. We felt a proportionately higher proportion to institutional shareholders relative to the retail sizing was important. At no point were we seeing to raise more than the size of what the script would have gone to Barclays. So, we were always capped at that size. In regard to the split between institutional and the SPP, it was based on receiveting certainty as well.
“In regard to the Lowys themselves, the fact that they were a cornerstone investor, a high quality investor known to us, and they were prepared to sit there and support the placing despite what was very altering and very challenging market conditions, and we had no certainty or site of what markets would react the following day given the weakened positions, the judgement for the board was to create that appropriate split.”
Still unconvinced, an attfinishee inquireed whether it believed its treatment of retail shareholders had been fair.
“The board is satisfied that the capital raising structure treated retail shareholders fairly. The placement was priced at effectively market price and at the same pricing as institutional placing, and all eligible retail shareholders were offered participation on identical terms through the SPP,” Formica declared.
“The board acknowledges the concerns raised regarding the relative size of the SPP and the subsequent scale back and these matters were carefully considered with a minimum allocation of approximately $1,000 or 118 new shares applied to protect compact retail participants. More broadly, we remain focutilized on delivering long term value for all shareholders, and we appreciate the engagement on these issues.”
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